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Equity release redefined – Rozario

by: Andrea Rozario
  • 27/04/2015
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Equity release redefined – Rozario
Lifetime mortgages were granted a Mortgage Credit Directive (MCD) exempt status earlier this month by the regulator. Andrea Rozario looks at how the changes will impact the equity release market.

The equity release market has rightfully garnered plaudits over the last few record breaking years, but this success has run alongside the spectre of the impending announcement by the Financial Conduct Authority (FCA) regarding the very definition of the lifetime mortgage.

Following considerable pressure from the equity release industry, the FCA have now announced that they are revising the single-definition approach that was originally planned to reflect the Mortgage Credit Directive’s (MCD) rules.

The lifetime mortgage will now have an additional defined term – MCD-exempt lifetime mortgages. The existing definition for a lifetime mortgage will be retained and the additional term will now enable products such as the potential new ‘hybrid’ products to fall under the lifetime mortgage definition via the additional defined term.

But why does it matter?

The success of the equity release industry’s campaigning against the FCA’s original plan is a real victory for businesses and customers alike. The importance of lobbying the regulatory body should not be overlooked as it serves as a cornerstone to the communicative approach we must all have with the FCA, the government and each other. Clear communication and acceptance of concerns is the only way we can all ensure that the customer remains our primary interest.

It is positive that the FCA altered their plans based on products that are yet to come to market. So-called hybrid products, that will require capital repayments, are not currently an important feature of the lifetime mortgage market, but the FCA concedes that they may well become a part of the market in the future. This is a real success.

As the equity release market continues to grow and more customers become interested in the possibilities of tapping into their housing wealth, it is essential that the industry can become reactive, acting fluidly to a changing marketplace. By incorporating an additional defined term of lifetime mortgages, the industry has the freedom to press on with future products that may well differ from today’s choices.

A tightrope of red-tape

The ‘hybrid’ lifetime mortgages that could become a major feature of the industry in the coming years, can now be planned and developed by providers and perhaps encourage new entrants to the market. The regulatory body has to walk a tightrope of red-tape, and, rightly or wrongly, tighter regulations and more forceful enforcement has become a central characteristic of the financial services market, post-financial crash. However, this announcement I hope will help to promote further innovative thinking in the future while retaining customer safeguards.

As the equity release market has continued to thrive, talk of how the market is becoming mainstream has been rife. Wishful thinking, some may believe, as our market, although growing steadily, is still on the relatively small scale compared to other industries.

However, what this decision signifies is a real step towards a bigger market while retaining the standards and safeguards everyone in the industry has fought so hard to secure. If the FCA had gone ahead with the single definition of a lifetime mortgage, many customers could have taken risks for the sake of possible lower interest rates, but they may have gone forward without a true understanding of how the lack of any safeguards could impact on them in the future.

Listening to the industry

Without the FCA’s acceptance of industry lobbying, the equity release market could have been marginalised with traditional lifetime mortgages becoming side-lined in favour of plans that, for all intent and purpose, look like lifetime mortgages but do not have the same protections and safeguards.

Thankfully, however, the FCA did listen to the industry. The new definition for hybrid lifetime mortgages allow for most of the same protections to be applied to these products, such as additional qualifications and enhanced advice. And so, with the industry becoming a more varied and innovative environment, more people will turn to their housing wealth and equity release will continue to help people achieve the retirement they deserve.

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